0. Foundations of Organizational Structure
Chapter SIXTEEN
Foundations of Organizational Structure
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1. What Is Organizational Structure?
How job tasks are formally divided, grouped, and coordinated
Key Elements
Work specialization
Departmentalization
Chain of command
Span of control
Centralization and decentralization
Formalization
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2. Key Design Questions and Answers for Designing the Proper Organization Structure
The Key Question The Answer Is Provided by
1. To what degree are articles Work specialization subdivided into separate jobs?
2. On what basis will jobs be grouped Departmentalization together?
3. To whom do individuals and groups Chain of command report?
4. How many individuals can a manager Span of control efficiently and effectively direct?
5. Where does decision-making Centralization authority lie? and decentralization
6. To what degree will there be rules Formalization and regulations to direct employees and managers?
E X H I B I T 16–1
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3. What Is Organizational Structure? (cont’d)
Work Specialization
The degree to which tasks in the organization are subdivided into separate jobs
Division of Labor
Makes efficient use of employee skills
Increases employee skills through repetition
Less between-job downtime increases productivity
Specialized training is more efficient
Allows use of specialized equipment
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4. Economies and Diseconomies of Work Specialization
E X H I B I T 16–2
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5. What Is Organizational Structure? (cont’d)
Departmentalization
The basis by which jobs are grouped together
Grouping Activities by:
Function
Product
Geography
Process
Customer
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6. What Is Organizational Structure? (cont’d)
Authority
The rights inherent in a managerial position to give orders and to expect the orders to be obeyed
Chain of Command
The unbroken line of authority that extends from the top of the organization to the lowest echelon and clarifies who reports to whom
Unity of Command
A subordinate should have only one superior to whom he or she is directly responsible
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7. What Is Organizational Structure? (cont’d)
Span of Control The number of subordinates a manager can efficiently and effectively direct
Concept
Wider spans of management increase organizational efficiency
Narrow Span Drawbacks
Expense of additional layers of management
Increased complexity of vertical communication
Encouragement of overly tight supervision and discouragement of employee autonomy
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8. Contrasting Spans of Control
E X H I B I T 16–3
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9. What Is Organizational Structure? (cont’d)
Centralization
The degree to which decision making is concentrated at a single point in the organization.
Decentralization
The degree to which decision making is spread throughout the organization.
Formalization
The degree to which jobs within the organization are standardized.
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10. © 2007 Prentice Hall Inc. All rights reserved.
Source: S. Adams, Dogbert’s Big Book of Business, DILBERT reprinted by permission of United Features Syndicate, Inc.
E X H I B I T 16–4
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11. Common Organization Designs
Simple Structure
A structure characterized by a low degree of departmentalization, wide spans of control, authority centralized in a single person, and little formalization
A Simple Structure: Jack Gold’s Men’s Store
E X H I B I T 16–5
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12. Common Organization Designs (cont’d)
Bureaucracy
A structure of highly operating routine tasks achieved through specialization, very formalized rules and regulations, tasks that are grouped into functional departments, centralized authority, narrow spans of control, and decision making that follows the chain of command
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13. The Bureaucracy Strengths Weaknesses Functional economies of scale
Minimum duplication of personnel and equipment
Enhanced communication
Centralized decision making
Weaknesses
Subunit conflicts with organizational goals
Obsessive concern with rules and regulations
Lack of employee discretion to deal with problems
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14. Common Organization Designs (cont’d)
Matrix Structure
A structure that creates dual lines of authority and combines functional and product departmentalization
Key Elements
Gains the advantages of functional and product departmentalization while avoiding their weaknesses
Facilitates coordination of complex and interdependent activities
Breaks down unity-of-command concept
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15. Matrix Structure (College of Business Administration)
(Director)
(Dean)
Employee
E X H I B I T 16–6
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16. New Design Options Team Structure Characteristics
The use of teams as the central device to coordinate work activities
Characteristics
Breaks down departmental barriers
Decentralizes decision making to the team level
Requires employees to be generalists as well as specialists
Creates a “flexible bureaucracy”
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17. New Design Options (cont’d)
Virtual Organization
A small, core organization that outsources its major business functions
Highly centralized with little or no departmentalization
Concepts
Advantage: Provides maximum flexibility while concentrating on what the organization does best
Disadvantage: Reduced control over key parts of the business
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18. A Virtual Organization
E X H I B I T 16–7
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19. New Design Options (cont’d)
Boundaryless Organization
An organization that seeks to eliminate the chain of command, have limitless spans of control, and replace departments with empowered teams
T-form Concepts
Eliminate vertical (hierarchical) and horizontal (departmental) internal boundaries
Breakdown external barriers to customers and suppliers
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20. Why Do Structures Differ?
Mechanistic Model
A structure characterized by extensive departmentalization, high formalization, a limited information network, and centralization
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21. Why Do Structures Differ?
Organic Model
A structure that is flat, uses cross-hierarchical and cross-functional teams, has low formalization, possesses a comprehensive information network, and relies on participative decision making
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22. Mechanistic versus Organic Models
E X H I B I T 16–8
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23. Why Do Structures Differ? —Strategy
Innovation Strategy A strategy that emphasizes the introduction of major new products and services
Cost-minimization Strategy A strategy that emphasizes tight cost controls, avoidance of unnecessary innovation or marketing expenses, and price cutting
Imitation Strategy A strategy that seeks to move into new products or new markets only after their viability has already been proven
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24. The Strategy-Structure Relationship
Strategy Structural Option
Innovation Organic: A loose structure; low specialization, low formalization, decentralized
Cost minimization Mechanistic: Tight control; extensive work specialization, high formalization, high centralization
Imitation Mechanistic and organic: Mix of loose with tight properties; tight controls over current activities and looser controls for new undertakings
E X H I B I T 16–9
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25. Why Do Structures Differ? —Size
How the size of an organization affects its structure. As an organization grows larger, it becomes more mechanistic.
Characteristics of large organizations:
More specialization
More vertical levels
More rules and regulations
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26. Why Do Structures Differ? —Technology
How an organization transfers its inputs into outputs
Characteristics of routineness (standardized or customized) in activities:
Routine technologies are associated with tall, departmentalized structures and formalization in organizations.
Routine technologies lead to centralization when formalization is low.
Nonroutine technologies are associated with delegated decision authority.
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27. Why Do Structures Differ? —Environment
Institutions or forces outside the organization that potentially affect the organization’s performance
Key Dimensions
Capacity: The degree to which an environment can support growth
Volatility: The degree of instability in the environment
Complexity: The degree of heterogeneity and concentration among environmental elements
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28. The Three-Dimensional Model of the Environment
Volatility
Capacity
Complexity
E X H I B I T 16–10
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29. “Bureaucracy Is Dead” Characteristics of Bureaucracies
Specialization
Formalization
Departmentalization
Centralization
Narrow spans of control
Adherence to a chain of command
Why Bureaucracy Survives
Large size prevails
Environmental turbulence can be largely managed
Standardization achieved through hiring people who have undergone extensive educational training
Technology maintains control
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30. Organizational Designs and Employee Behavior
Research Findings
Work specialization contributes to higher employee productivity, but it reduces job satisfaction.
The benefits of specialization have decreased rapidly as employees seek more intrinsically rewarding jobs.
The effect of span of control on employee performance is contingent upon individual differences and abilities, task structures, and other organizational factors.
Participative decision making in decentralized organizations is positively related to job satisfaction.
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31. Organization Structure: Its Determinants and Outcomes
Associated with
Implicit Models of Organizational Structure
Perceptions that people hold regarding structural variables formed by observing things around them in an unscientific fashion
E X H I B I T 16–11
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32. Chapter Check-up: Structure
What kind of structure might someone who has a low tolerance for ambiguity feel most comfortable in?
Bureaucratic
Organic
Matrix
Virtual
Discuss with your neighbor why a virtual organization would not make this same person feel comfortable.
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33. Chapter Check-up: Structure
If someone has a high need for affiliation, would a virtual organization be a good fit for him or her? Why or why not?
Discuss with a classmate whether or not an organic organization would be a good fit for this same person.
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34. Chapter Check-up: Structure
With which type of structure do you think trust is most necessary? Why? Are the “substitutes for trust” that are potentially built into some structures? If so, which ones?
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